The government’s debt load is projected to climb to 65.7 percent of economic output by 2026, a return to levels last seen two decades ago as the country grapples with the lingering fiscal fallout of the pandemic.

The forecast, detailed in a research paper released Monday, Feb. 9, by the state-funded Philippine Institute for Development Studies (PIDS), underscored the challenge facing the Marcos administration as it seeks to balance infrastructure spending with fiscal discipline.

Researchers Margarita Debuque-Gonzales and Charlotte Justine Diokno-Sicat, among others, noted that although the debt-to-gross domestic product (GDP) ratio is rising, the surge is primarily attributable to the pandemic-induced economic contraction and emergency relief spending rather than to structural weaknesses or rising borrowing costs.

The study’s projection follows data from the Bureau of the Treasury showing total outstanding debt hit a record ₱17.71 trillion at the end of 2025. That figure exceeded the government’s ₱17.36 trillion target, pushed higher by weakening peso and the continued need to finance large-scale development projects.

Consequently, the debt-to-GDP ratio reached 63.2 percent last year, moving further away from the government’s stated goal of returning the ratio to approximately 60 percent by the end of President Ferdinand Marcos Jr.’s term.

Despite the headline increase, PIDS analysts argued the outlook remains sustainable. Nearly half of the debt spike at the height of the pandemic was used to build cash buffers, a move intended to insulate the economy from prolonged disruption while locking in interest rates at historic lows.

When these cash reserves are factored into the analysis, the net debt trajectory appears significantly more manageable, according to the paper.

Returning the debt ratio to its pre-pandemic baseline by 2031 will require the government to improve its primary balance by between 1.4 percent and 3.4 percent of GDP, depending on the pace of economic growth.

The researchers suggested that more gradual adjustment might be necessary to avoid stifling the recovery. If the target timeline is extended to 2041 or 2051, the required annual fiscal adjustments could drop to as low as 0.10 percent of GDP.

The report also noted that the Philippines maintains a “statistically significant” fiscal response to rising debt, with a reaction coefficient of 0.06 to 0.09. This outperforms the average for other emerging markets and regional peers in the Association of Southeast Asian Nations. This historical tendency to improve primary balances as debt increases suggests a level of fiscal responsibility that supports long-term solvency, the think tank said.